A one-man Ltd company with low income

[gmaz]

I was recently made voluntarily redundant from my employer, am in my late 50's and financially secure so decided to (semi) retire.

I say "semi-retire" as the same company want to keep me on a retainer for a specific ongoing application support project I have worked on for 16 years. This project occupied me for about 2 hours a week, so not enough to retain a full time salaried employee.

Anyway, the retainer and ad-hoc support will provide about £7000-£12000 income per year. I have set up my own Ltd company, business bank account and quickbooks subs to start this off but I have a few questions I'm hoping someone can help with. There are no expenses as it is all remote IT support.

1. Will I need an accountant, considering the small income, or can quickbooks/HMRC systems handle everything?

2. I assume I can pay myself via dividends. I don't need to make any NI payments as that is all up to date from 37 years of PAYE employment.

3. No need for pension payments as I've retired and will be taking my pension later in the year

4. Any tips on how I can maximise the income, tools etc

[ecs]

Leaving a company on a Friday as an employee and coming back on the following Monday as an Ltd. co contractor is exactly what IR35 was brought in to prevent. It's also quite a small amount of money to bother running an Ltd. co for.

[Simpo Two]

Quite. I would have done it as a sole trader and had the income, which I presume is one payment per month, sent to my normal account. No need to pay yourself, it's all yours.

If it's your only source of income you won't pay any income tax at that level until your pension kicks in.

[gmaz]

ecs said:

Leaving a company on a Friday as an employee and coming back on the following Monday as an Ltd. co contractor is exactly what IR35 was brought in to prevent. It's also quite a small amount of money to bother running an Ltd. co for.

I knew I'd get an IR35 response. Their legal dept have OK'ed the contract as IR35 friendly, probably because the expected income will be below the tax threshold. If the IR35 penalty is to pay the unpaid tax, but no tax is due, then how does it fall within IR35?

[super7]

gmaz said:

ecs said:

Leaving a company on a Friday as an employee and coming back on the following Monday as an Ltd. co contractor is exactly what IR35 was brought in to prevent. It's also quite a small amount of money to bother running an Ltd. co for.

I knew I'd get an IR35 response. Their legal dept have OK'ed the contract as IR35 friendly, probably because the expected income will be below the tax threshold. If the IR35 penalty is to pay the unpaid tax, but no tax is due, then how does it fall within IR35?

This is hardly full time.... no IR35 involvement at all here. I guess you need a Ltd company as you have to invoice the client and charge VAT?

[ecs]

Interesting thought actually - I don't know what NICs are payable on that level of income and you'd have to be unlucky to get caught. Would need the input from an accountant with relevant experience to get the right answer.

But the main thing is I think, for that level of income, you'd be better of as a sole trader. You'll have to pay corp. tax on your profits as an Ltd. co where as you could use your personal allowance if you were self employed. You could pay all your profits from the company as salary and reduce your corp. tax liability but it all seems like a lot of hard work to me?

[Ziplobb]

I am struggling to understand why a limited company was set up ? where is any advantage ? simply more admin and cost that does not seem necessary unless your company will be providing other services.

[Mr Pointy]

As others have said for £12k a year the only advantage of working as a PSC is the limited liability. You can save yourself a bunch of costs by operating as a ST, drop the Quickbooks costs & maybe the bank account if it's not free & run everything on an Excel spreadsheet. If you don't fancy doing the SA return then find an accountant who can do it for you.

You can claim for costs necessarily incurred so if you need a PC, laptop or printer then you can claim for them plus a percentage of the costs of internet line & mobile phone. If you have to drive then keep a mileage record & you can claim the work percentage of running costs. Don't forget business class car insurance & maybe professional indemnity insurance.

I'm not sure NI is optional if you haven't reached State Pension retirement age.

[gmaz]

Yes, it is a Ltd company for the limited liability aspect. I've used a free business bank account

Thanks for the other responses, useful food for thought.

[trickywoo]

With a Ltd you'll need to do the statutory returns so accounts, annual confirmation and also the corp tax return.

Trouble with a Ltd is that there is no tax free band as with personal income so you'll pay 20% (or whatever it is, (I've lost track) on every £1 of profit. Dividends don't come out pre tax so doing it that way will incur corp tax of 20% and then personal tax, if you have additional income pushing you over the nil allowance.

If you are hellbent on a Ltd you are better off paying yourself a salary but then you'll need to register for payroll which is more admin on top.

[super7]

trickywoo said:

With a Ltd you'll need to do the statutory returns so accounts, annual confirmation and also the corp tax return.

Trouble with a Ltd is that there is no tax free band as with personal income so you'll pay 20% (or whatever it is, (I've lost track) on every £1 of profit. Dividends don't come out pre tax so doing it that way will incur corp tax of 20% and then personal tax, if you have additional income pushing you over the nil allowance.

If you are hellbent on a Ltd you are better off paying yourself a salary but then you'll need to register for payroll which is more admin on top.

He pays himself a salary. All expenses as well, so travel, home office, laptop, broadband etc etc. I'm sure 7-12k would be got rid off quite quickly.....

[Simpo Two]

super7 said:

I guess you need a Ltd company as you have to invoice the client and charge VAT?

You don't need to have a limited company to raise invoices or charge VAT.

[gmaz]

super7 said:

He pays himself a salary. All expenses as well, so travel, home office, laptop, broadband etc etc. I'm sure 7-12k would be got rid off quite quickly.....

There won't be any travel, home office allowance is £6 a week I think. Laptop, broadband etc is not exclusively used by the business so not claimable?

Looking at paying max £12,570 salary, £2000 dividends.

It sounds like I need to speak to an accountant initially, and then to do the year end stuff. I can handle monthly invoices and pay slips myself once I've got the basics.

[Rebew]

gmaz said:

There won't be any travel, home office allowance is £6 a week I think. Laptop, broadband etc is not exclusively used by the business so not claimable?

Looking at paying max £12,570 salary, £2000 dividends.

It sounds like I need to speak to an accountant initially, and then to do the year end stuff. I can handle monthly invoices and pay slips myself once I've got the basics.

Accountant here

Limited company seems like overkill but if you are set on that to limit liability then salary up to £12,570 (depending on other income) then dividends on top is the way to do it. Quickbooks will allow you to run your own payroll, and an accountant can slap together a set of accounts at year end for you.

No need for VAT registration or anything like that based on stated turnover.

[MaxFromage]

A limited company is a waste of time and money in this scenario. Either stay employed or go down the sole trader route.

[Mr Pointy]

gmaz said:

There won't be any travel, home office allowance is £6 a week I think. Laptop, broadband etc is not exclusively used by the business so not claimable?

You'd get away with claiming for a laptop & printer. Don't forget the toner, paper & stamps at Christmas. Claim 50% of your broadband - if you don't take the piss it won't be picked up. New desk & office chair, new monitor, it's all claimable.

You can get PI insurance even as a ST.

[gmaz]

MaxFromage said:

A limited company is a waste of time and money in this scenario. Either stay employed or go down the sole trader route.

The company I am providing services to will not subcontract to a sole trader, and I don't want to be employed.

[StevieBee]

gmaz said:

MaxFromage said:

A limited company is a waste of time and money in this scenario. Either stay employed or go down the sole trader route.

The company I am providing services to will not subcontract to a sole trader, and I don't want to be employed.

Quite common, particularly with public sector institutions and one of the reasons I did the same. Although you're only intending to work for the one client, you never know what other interesting opportunities are around the corner and the advantage of a Ltd company is that you have a vehicle that provides a better basis of growth should such opportunities (and desire) arise later on.

[Mr Pointy]

gmaz said:

MaxFromage said:

A limited company is a waste of time and money in this scenario. Either stay employed or go down the sole trader route.

The company I am providing services to will not subcontract to a sole trader, and I don't want to be employed.

In which case I would suggest you do a very detailed calculation of how much you are going to be left with at the end of the year. Accountant's fees could easily be £1500 or more & by the time you have paid for corp tax, NI, insurance etc you might find you're working for less than minimum wage.

[Eric Mc]

gmaz said:

I knew I'd get an IR35 response. Their legal dept have OK'ed the contract as IR35 friendly, probably because the expected income will be below the tax threshold. If the IR35 penalty is to pay the unpaid tax, but no tax is due, then how does it fall within IR35?

With all due respect, their legal department is talking rubbish. You are squarely caught by IR35.

The IR35 penalty is to pay tax AND NI (including Employer's NI). Have a look at the NI thresholds - they are MUCH lower than tax thresholds.

And don't forget, the single tax threshold covers ALL your income in a given tax year. Will you have other earnings from other sources and/or will you have investment income running alongside your income from your limited company?

And what about the extraction of income from your company? Have you thought about how you are going to do that. The company will pay Corporation Tax on its profits and you will pay Income Tax and (perhaps) NI on what you personally extract from the limited company.

Do you intend to set up your limited company as an Employer so it can properly administer the PAYE and NI calculations - and submit them to HMRC each month as is required under the RTI system (RTI = Real Time Information).